JP Morgan China Conference Speech

Transcription

1 (Stock Code:3311.HK) JP Morgan China Conference Speech Sammy Zhou, Vice Chairman & CEO 13 June 2012

2 Disclaimer These materials have been prepared by China State Construction International Holdings Ltd. ( CSCI or the Company ) solely for information use during its presentation may not be reproduced or redistributed to any other person without the permissions from CSCI. By attending this presentation, you are agreeing to be bound by the foregoing restrictions. It is not the intention to provide, and you may not rely on these materials as providing, a complete or comprehensive analysis of the company s financial or trading position or prospects. The information and opinions in these materials are provided as at the date of this presentation and are subject to change without notice. None of the Company nor any of its respective affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of these materials. The information in this material contains certain forward-looking statements. These include statements regarding outlook on future development schedules, business plans and expectations of capital expenditures. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated by the Company. The materials and information in the presentations and other documents are for informational purposes only, and are not an offer or solicitation for the purchases or sale of any securities or financial instruments or to provide any investment service or investment advice. 2

3 Shareholding Structure State-owned Assets Supervision & Administration Committee( 国资委 ) 100% China State Construction Engineering Corporation( 中建总公司 ) 53.0% China State Construction Engineering Corporation Limited( 中建股份 : CN) 100% China Overseas Holdings Limited ( 中国海外集团有限公司 ) 61.9% 53.1% China State Construction International Holdings Limited(3311.HK) 74.1% China Overseas Land & Investment Limited (0688.HK) 38.0% Far East Global Group Limited(0830.HK) China Overseas Grand Ocean (0081.HK) 3

4 Corporate Milestone 4

5 Performance since Listing Revenue Growth (HK$ in Mn) Gross Margin Expansion (%) 16, ,295 10,168 11,021 11,342 11, , FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 Net Profit Growth (HK$ in Mn) 1,507 1,036 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 EPS Growth (HK$ in Cents) FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 5

6 Business Map China State Construction International Holdings Limited Infrastructure Investment (Mainland China) Cash Construction and Related Operation of Infrastructure Assets (TOT, TO and O of BOT) BT (Build - Transfer) BOT (Build Operate - Transfer) Hong Kong & Macau Mainland China International Markets Affordable Housing BT Pre-cast Production Infrastructure BT Site Supervision 6

7 Infrastructure Investment Three Models BT Build The Company (or JV) acts as the investor and general contractor of the project; The project is co-financed by the Company (or JV) and banks; The Company books construction revenue and profit during construction stage. Transfer Immediately after completion, government starts payback process lasting for short period; Government offers financial guarantee and includes payback into its future financial budget; A bank signs three party final backup agreement as the final guarantee to minimize the Company s risk. Build Operate Transfer BOT Similar to the Build stage of BT project. Government awards a years concession of project operation to the Company. The Company carries out thorough due diligence to ensure a high return on project. At the end of concession, the project is transferred back to government. Transfer Operate Transfer TO & TOT The Company acquires existing infrastructure projects from parent or sister companies or outside parties. The Company operates these projects to generate recurring income and steady cash flow. TO: The Company owns the infrastructure assets perpetually. TOT: At the end of concession, the project is transferred back to government. 7

8 Affordable Housing Basic Concept Category Type Ownership Target Operated by Selling or Rental Price As a Percentage of 2012 AH Plan* Sellable Economic Housing (EH) Price Limited Housing (PLH) Private Private Mid-low income group Mid-low income group Developer Developer Less than 50% of market price Less than 80% of market price 10.2% 9.0% Low Rent Housing (LRH) Public Lowest income group Government Less than 10% of market level 14.0% Nonsellable Public Rent Housing (PRH) Relocation Housing (RH) Public Private Low income group ( Sandwich Class ) Government Relocated households Government 30% - 80% of market level Compensated Proportionally; Similar Price to EH for Extra Area 28.2% 38.6% Source: MoHURD The percentage information was from 2012 Plan on Affordable Housing by MoHURD 8

9 Affordable Housing Policy in the Past At the end of 2011, MoHURD announced to build no less than 7 million units in 2012 which is in line with expectation. Also, for the first time, MoHURD introduced the completion target of 5 million units in 2012; In January 2012, MLR announced to provide full support to the land of 7 million units of affordable housing in 2012; In February 2012, MoF required local governments to allocate the financial resources funded from bond issuance to affordable housing construction; In Feb 2012, NDRC pointed out that affordable housing investment from central government in 2012 will be RMB20bn more than 2011 and the timing of investment is much earlier. At the end of 2010, MoHURD announced to build 10 million units, in which incremental part will mostly be non-sellable affordable housing; In February, central government signed Document of Objective Responsibility again with local governments and required all targeted affordable housing projects must start construction before 31 October 2011; In March, Premier Wen Jiabao announced China will build 36 million units of affordable housing during 12th 5-Year Plan, which mainly include PRH and LRH. He estimated the percentage of affordable housing in total housing supply will be 20% by then. In December 2011, MoHURD announced the 10 mn units construction starts target in 2011 has been finished. In May, MoHURD signed Document of Objective Responsibility with local governments on building 5.80 million unites of affordable housing and renovating 1.20 million units of dangerous buildings in rural area; In November, MoF required local governments to allocate 10% of net income from land sales to PRH; In 2010, the actual construction starts and completion of affordable housing amounted to 5.90 million and 3.70 million units respectively, which achieved the target set by state council In May, Low Rental Housing Plan : to build 5.18 million units of low rent housing (2009: 1.77 million; 2010: 1.80 million; 2011: 1.61 million). In December, Instructions on Healthy Development of Property Market : to build 1.3 million units of economic housing per year in In March, Stabilize Property Price : The importance of adjustment and improvement of housing supply structure Sources: State Council, MoHURD, NDRC, MoF 9

10 Affordable Housing Market and Policy (1) Since 2011, the structure of affordable housing supply has changed to Relocation Housing and Public Rent Housing as the pillar and Low Rent Housing, Economic Housing and Price Limited Housing as complement, indicating that Relocation Housing and Public Rent Housing are the main types of affordable housing in coming years; Since 2012, China affordable housing policy has enhanced focus on execution of construction rather than the number of construction starts. With the first introduction of completion target in 2012, it is expected that the real starting rate of affordable housing will increase significantly; 100% 90% 80% 70% 60% 50% 40% China Housing Supply and Estimate 30% - Guidance from central government on percentage of affordable housing in total housing supply Central government aims at that affordable housing to account for 30% of total housing supply in China. However, the potential for affordable housing is still large as affordable housing is expected to take 20% of total housing supply after the completion of 36 mn units scheme in 12 th Five Year Plan ; It is expected that affordable housing construction will become a normality after 12 th Five Year Plan and related supporting policies will be announced. 30% 20% 10% 0% E 2011E 2012E 2013E 2014E 2015E Affordable Ordinary High-end 10

11 Affordable Housing Market and Policy (2) Forecast of Affordable Housing Construction Plan in 12 th Five Year Plan Three Major Models of Affordable Housing Construction and Development 36 mn units planned for five years Model Type Covered Profitability As a Percentage of Total* Developed by Property Developers Sellable Affordable Housing Unstable About 15-20% 4.0 Cash Construction All Types Relatively Low About 50-60% A 2009A 2010A 2011A 2012A 2013E 2014E 2015E Source: State Council, MoHURD, Company Estimates Build - Transfer Non-sellable Affordable Housing (Mainly Relocation Housing) Relatively High About 20-30% 11

12 Transportation Infrastructure Market (1) 70% 60% 50% 40% 30% 20% 10% 0% -10% 2011 China Highway New Investment Breakdown Western Region 40.3% Central Region 27.9% Eastern Region 31.8% YoY Growth of Highway Investment by Region 2008A 2009A 2010A 2011A Source: MoT, Local Governments All China Eastern Region Central Region western Region Since the 4 Trillion stimulus package, transportation, especially highway infrastructure market has gone through a spurt of growth and then reverted to a rational level; The new investment in highway recorded a YoY growth of lower than 10% in 2011, indicating an end of super growth since 2008; Transportation infrastructure growth in PRC has been unbalanced geographically; The growth in coastal areas has been slow down with a negative growth in highly developed regions, such as Shanghai, Guangdong, etc.; With the policy support of Development of West, western region has become the main growth drive of transportation infrastructure investment in recent years. 12

13 FY1981 FY1982 FY1983 FY1984 FY1985 FY1986 FY1987 FY1988 FY1989 FY1990 FY1991 FY1992 FY1993 FY1994 FY1995 FY1996 FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY Sep 2009-Oct 2009-Nov 2009-Dec 2010-Jan 2010-Feb 2010-Mar 2010-Apr 2010-May 2010-Jun 2010-Jul 2010-Aug 2010-Sep 2010-Oct 2010-Nov 2010-Dec 2011-Jan 2011-Feb 2011-Mar 2011-Apr 2011-May 2011-Jun 2011-Jul 2011-Aug 2011-Sep 2011-Oct 2011-Nov 2011-Dec 2012-Jan 2012-Feb 2012-Mar 2012-Apr Transportation Infrastructure Market (2) 40.0% 30.0% 20.0% 10.0% 0.0% FAI Trend in Recent Months Construction related FAI has been increasing rapidly since the policy of Reform and Openingup in China; The urbanization trend of PRC determines that transportation infrastructure is still in upward path, as urbanization is one of the main drive of infrastructure development; -10.0% Although growth rate of transportation -20.0% Total FAI Road Infrastructure Property infrastructure investment is slowing down due to structural adjustment, central government s FAI Trend since 1981 supporting measure to stimulate growth will Rapid Growth by High Volatility Steady and Healthy Growth in the Future 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% become another growth drive of FAI in the future; We believe the growth potential of transportation infrastructure is still large and such growth tends to be more stable and sustainable % Source: NBS 13

14 Local Government Financial Analysis Annual Financial Revenue Breakdown of A Government Vehicle Tax 0.68% LAT 1.73% Stamp Duty Urban 1.44% Construction and Maintenance Tax 5.91% 4.92% Transportation 5.89% Environmental Protection 1.63% Social Security and Employment 7.50% Farmland Occupation Tax 0.56% Extractivation, Power, and Information Forestry and Water 7.42% Land Use Tax 4.19% Property Tax 4.42% Resource Tax 0.14% Food Supplies and Reserves 1.03% Urban-Rural Community 14.06% Medical 7.76% Land Sales 5.12% VAT 23.85% Business Tax 29.04% Personal Income Tax 4.99% Contract Tax 7.21% Post-earthquake Others Recovery and Construction 0.97% Corporate Income Tax 10.74% Annual Financial Expense Breakdown of A Government 0.54% National Defense 0.26% Education 24.56% Science and Technology 2.97% General Public Services 12.43% Public Security 6.15% Culture, Sports, and Media 1.91% At the end of 2011, local government debt balance only increased by RMB300mn, which shows local government debt has been in control since the LGFV investigation in 2011; By 2011, China has a relatively low debt to GDP ratio but higher GDP growth rate among all major developed and developing economies; Local government has relatively low dependence to land sales in and diversified sources of financial income, which ensures the payback capability; Overall, we believe local government financial position remains solid and will not create major downside risks to economy in China. 14

15 Infrastructure Investment Current Projects No. Project Name Time Awarded Type Remarks 1 Shenyang Huanggu Heating Plant Nov 2007 TO Perpetual Ownership 2 Nanchang Toll Bridges Oct 2008 TOT 3 Nanjing 2 nd Yangtze River Bridge Sep 2010 TOT Transfer to government after concession Transfer to government after concession 4 Tangshan Binhai Avenue May 2009 Infrastructure BT Contract value: HK$1.85bn Wuhan Wuxian Highway and Shahu Bridge Wuhan 2 nd Circle Line and Additional Contracts Taiyuan South Station Western Square Jul 2009 Jul 2010 Jan 2011 Infrastructure BT Contract value: HK$800mn Infrastructure BT Contract value: HK$1.48bn Infrastructure BT Contract value: HK$1.13bn 8 Shanxi Wuyu Expressway Jun 2011 Infrastructure BT Contract value: HK$7.17bn Wuhan East Lake Passageway and Feb 2012 Yangtze River Avenue Tianjin Junliang City Relocation Housing Jun 2010 Tianjin Jinzhong Street Relocation Nov 2010 Housing Chongqing Hechuan Relocation Housing and Public Rent Housing Jan 2011 Zhangzhou Ecological Park Relocation Housing Apr 2011 Hangzhou Xiaoshan Relocation Housing Jul 2011 Wuxi Huishan Vocational Park Relocation Housing Jul 2011 Hangzhou Xiaoshan Beigan Relocation Housing Oct 2011 Hangzhou Xiaoshan Xintang Relocation Housing Oct 2011 Zhangzhou Limin Jiayuan Affordable Housing Apr 2012 Infrastructure BT Contract value: HK$2.26bn Affordable Housing BT Affordable Housing BT Affordable Housing BT Affordable Housing BT Affordable Housing BT Affordable Housing BT Affordable Housing BT Affordable Housing BT Affordable Housing BT Contract value: HK$1.40bn Contract value: HK$810mn Contract value: HK$2.00bn Contract value: HK$3.00bn Contract value: HK$670mn Contract value: HK$1.98bn Contract value: HK$1.74bn Contract value: HK$1.08bn Contract value: HK$2.84bn 19 Shanxi Yangquan G307 Highway Dec 2009 BOT Under construction Shanxi Yangyu Expressway Apr 2010 BOT Under Operation 15

16 Key Strengths in Affordable Housing Market Strong central-soe background leads to a better cooperative relationship with local governments and smooth financing channel under tightening credit environment; Dual-identities (SOE + FDI) are welcomed by governments due to the fulfillment of both affordable housing construction and FDI attraction tasks; Solid financial position amid multiple financing channels low net gearing and flexible financing platforms in both HK and PRC providing effective solution to local government s short term financial shortfall; Outstanding track record of building affordable housing CSCI more than 30 years experience in building public housing in HK & Macau and still possesses a market share of 30% in HK public housing construction. 16

17 BT Affordable Housing Junliang City Relocation Housing, Tianjin Green Lake Ecological Park Relocation Housing, Zhangzhou Hechuan Relocation Housing and Public Rent Housing, Chongqing Strategies Backed by the golden opportunity of affordable housing in PRC, actively participate in affordable housing construction; Focus on tier-2 and tier-3 cities which are economically active and financially strong, such as Tianjin, Chongqing, Wuhan, Chengdu, Xi an, Changsha, etc.; To obtain a higher profitability, focus on BT model in stead of cash construction; To achieve 1% market share in the total plan of affordable housing market in 12th 5-Year Plan ; Target at a gross margin of 10%+ and an equity IRR of 20%+. 17

18 BT & B of BOT - Infrastructure Binhai Avenue, Tangshan Wuyu Expressway, Shanxi Yangyu Expressway, Shanxi Strategies Leveraging on nationwide coverage and solid government relationship of parent company, actively search for infrastructure BT & BOT projects in PRC; Selectively choose projects in cities with strong financial position and multiple guarantees to minimize financial risks; Utilize construction resources (eg. Subcontractor, supplier, labor, etc.) of parent company, excel the implementation of construction works; As the only BOT platform of parent company, carry out thorough due diligence on the future return by professional management team Target at a gross margin of 10%+ and an equity IRR of 20%+/12%+ for BT/BOT projects respectively. 18

19 Operational Assets (TO/TOT and O of BOT) Huanggu Heating Plant, Shenyang Xinbayi Bridge, Nanchang Nanchang Bridge, Nanchang 2 nd Yangtze River Bridge, Nanjing Strategies With the natural growth of heating plant and toll bridges, the recurring income base of CSCI will keep rising; The steady cash flow from these operational assets is important source of finance to support CSCI s further development in affordable housing and infrastructure BT business; CSCI will actively search for more TO/TOT acquisition opportunities, including those from parent company; Target at an equity IRR 12%+. 19

20 HK & Macau Construction HK Construction Market Volume (HK$ in Mn) Macau Construction Market Volume (MOP in Mn) 120, ,000 80,000 60,000 40,000 20,000 0 Public 60,000 50,000 40,000 30,000 20,000 10,000 0 Source: HK Statistics & Census Department, Macau Department of Statistics & Census Service Market Outlook HK 10 Mega Projects have been gradually started construction since 2010 and it is expected to have more large infrastructure projects in next 5-8 years; Historical records show gross margin expands along with market volume booms as competition mitigated; Macau construction market has gradually recovered and is expected to launch a mini-boom with casino expansion, government infrastructure and private development. Strategy Maintain leading position in Hong Kong and Macau construction markets;; Target to win more projects with margin protection mechanism in HK, including government projects, to mitigate risk of cost fluctuation; Target to win more large and socially reputable infrastructure projects; Closely follow up casino expansion, government projects and HK developers construction works in Macau. 20

21 Target & Guidance Target to forge twin growth engines (Infrastructure Investment and Construction), to obtain long term growth in profit and scale, and to become an international Infrastructure Investment + Construction player with strong competitive advantages. Target Achievement in 2011 Guidance for 2012 Net Profit Growth YoY +45.5%(vs. +20% target) No less than 20% New Contracts Awarded IRR for Infrastructure Investment Affordable Housing Business HK$30.28 Bn (vs. HK$30 Bn target) BT: 20% BOT/TO/TOT: 12% Obtained projects with a GFA of 3 Mn sq.m. and a contract value of HK$8.68 Bn (vs. GFA 3 Mn sq.m. target) No less than HK$33 Bn BT: 20% BOT/TO/TOT: 12% To obtain projects with a GFA of 4 Mn sq.m. Capex HK$3.8 Bn HK$5.0 Bn - in which Affordable Housing BT HK$1.4 Bn HK$2.5 Bn Dividend Payout 30% No less than 30% 21

22 Long Term Breakdown Target Revenue Breakdown Target by 2015 (By Region) Net Profit Breakdown Target by 2015 (By Region) 10% 5% 30% 60% PRC HK Others 20% 75% PRC HK Others Revenue Breakdown Target by 2015 (By Business) Net Profit Breakdown Target by 2015 (By Business) 33% 67% Infrastructure Investment Construction 20% 80% Infrastructure Investment Construction 22

23 Thank You! Q & A For further enquiries: Mr. Jacky Zhou Assistant General Manager Head of Investor Relations Tel: jacky_zhou@cohl.com 23